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Currency Market Observations – 24 Oct 2011

A guest post written by DAR Wong

European leaders plan to introduce debt salvation

Fundamental Outlook

The US housing slump persists despite mild inflation steps up in producer prices. The euro currency fluctuates European governments plan to deploy USD1.3 trillion in rescue funds for sovereign debt crisis. British inflation rise but is believed to be short-termed.

The US industrial production increased 0.2 percent in September and matched with median forecast. Producer price index gained 0.8 percent, highest in past 5 months, probably due to steady energy prices. Core prices rose 0.2 percent.

However, the US housing starts for September climbed 15 percent to a 658,000 annual rate, the most since April 2010 despite gloomy economy but existing home sales slid 3 percent to 4.91 million annual rates amid rising unemployment. Jobless claims dropped by 6,000 to 403,000 in the week ended 15 October.

Japan is preparing to unveil plan for JPY4 trillion (USD52 billion) in helping to trigger exports and also to increase jobs after the economic meltdown from Tsunami attack in March. Yen is literally inactive due to declining interest among international investors.

German investor confidence measured by ZEW Center for European Economic Research in Mannheim said its index declined has been affected by euro crisis and sank to minus 48.3 from minus 43.3 in September. German government warns of far from recovery though plans have been drawn up to bailout euro debt crisis. Both Germany and France have proposed to European governments to confirm the rescue plan before 26 October on outlaying USD1.3 trillion in the debt crisis.

The UK consumer price rose 5.2 percent in September from a year earlier, compared with 4.5 percent annual rate in August. Central Bank Governor Mervyn King claimed consumer price growth has probably peaked in September and will fall in 2012.

Britain budget deficits fell in September to GBP14.1 billion (USD22 billion) from GBP15.4 billion a year earlier, lower than median forecast. The cut in government spending starts to take effect. Most analysts have cut UK growth forecast for next year and agree Bank of England (BOE) should lower key interest rate instead because the bonds purchase program is unlikely to revive economic growth.

Technical Forecast

USD/JPY is moving in tight range from 76.00 to 77.50 regions despite market took a dip to 75.76 last Friday. We foresee not much continual movement in the imminent trend until Japan’s government implements stimulus. In that case, the market will possibly reverse up with weakening yen.

EUR/USD traded in sideways from 1.3650 to 1.3914 regions last week and turned up on Friday due to European leaders’ bailout plan. This week, we expect the market to move inside this range while waiting for affirmative outcome from European Union. Breaking the support S1 – 1.3650 may test the lower S2 – 1.3550. Abandon your short-view if the trend violates above 1.3950!

GBP/USD unexpectedly jumped higher on Friday due to narrower budget deficits. Market broke the 1.5850 resistances and tested 1.5950 benchmarks. This week, we foresee the market may test 1.6080 before it sides again. A false break like this could initiate new bears in market since pound has climbed up from recent bottoms 1.5271. Otherwise, we may see 1.6200 as next target!

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).


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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

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